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[2011] NSWSC 1063
Supreme Court of NSW
2011-09-12
Simpson J, Davies J
Original judgment source is linked above.
Judgment 1These proceedings were commenced by summons filed on 22 February 2011. By notice of motion filed on 25 March 2011, Bhushan Steel Limited and Bhushan Steel (Australia) Pty Ltd seek an order that orders made by Davies J on 23 February 2011 be set aside or varied; and a stay of execution of a judgment of the Geneva Court of Appeal, which was, on 3 March 2011, registered pursuant to the Foreign Judgments Act 1991 (Cth), s 6. 2The parties to the proceedings are: Severstal Export GmbH ("Severstal") (plaintiff in the proceedings, respondent to the notice of motion); Bhushan Steel Limited ("Bhushan Steel") (defendant to the proceedings, an applicant in the notice of motion); Bhushan Steel (Australia) Pty Ltd ("Bhushan Australia") (not a party to the summons, but named as an applicant in the notice of motion). 3The order of Davies J sought to be set aside or varied was a freezing order made pursuant to the Uniform Civil Procedure Rules ("UCPR"), Pt 25, Div 2. I will say more about the detail of the order in due course.
Background 4Severstal is a company incorporated in Switzerland. Its business is to export, market and trade in steel products. 5Bhushan Steel is a company incorporated in India. Its business is the manufacture of steel products, including motor vehicle bodies and whitegoods. Bhushan Steel is part of (probably the centrepiece) of an extensive network of interrelated companies. It is a very substantial company. 6Bhushan Australia is a wholly owned subsidiary of Bhushan Steel, incorporated in Australia. 7Also to be noted is the existence of Bhushan Energy Limited ("Bhushan Energy"), a public limited company, part of the Bhushan companies network, and incorporated in India. 8Between August and December 2004, Bhushan Steel and Severstal entered into three contracts, pursuant to which Severstal supplied steel products to Bhushan Steel. Delivery of the steel the subject of the first contract was effected between 27 December 2004 and 5 January 2005; of the second contract between 31 March 2005 and 19 April 2005; and of the third contract, between 28 May 2005 and 23 June 2005. On 7 January 2005, Mr Pankal Sharma, an employee of Bhushan Steel, confirmed by email that the quality of the steel delivered to that date was acceptable ("absolutely OK"). 9On 3 February 2005 and 18 February 2005, Bhushan Steel placed two further orders with Severstal for the supply of steel, and the steel the subject of these orders was delivered between 1 July 2005 and 30 August 2005. On 9 March 2005, Bhushan Steel placed a sixth order, for the supply of 7,000 metric tonnes of steel. This contract was numbered 50754. 10The contractual arrangements between the parties were made with the assistance of Mahindra Intertrade Limited ("Mahindra"), a company used by Severstal to communicate on its behalf with Bhushan Steel. 11On 1 April 2005, it claims (the document is not among the voluminous documentary material in evidence), Bhushan Steel raised some issues about the quality of the steel delivered. 12On 4 May 2005, Mahindra advised Bhushan Steel that the steel the subject of contract 50754 was ready for delivery, subject to the opening of a letter of credit in payment (there was a minor discrepancy in the quantity of steel available, that Severstal recognised called for adjustment in the contract price. This is not presently material.) 13On 1 June 2005, Bhushan Steel advised Mahindra that it could not open the letter of credit (or take delivery of the steel). It gave as its reason a decline in the international price of steel, with the result that Bhushan Steel could not, using steel purchased at the contract price, operate competitively. 14Severstal insisted on completion of the contract; Bhushan Steel refused to complete. 15In September 2005, Severstal applied, in the local court in Dsseldorf, Germany, for "attachment orders" which were initially granted. These appear to be a form of temporary summary judgment. In this application, Severstal was seeking to enforce contract 50754. On 31 October 2005, the Dsseldorf court "cancelled" or, discharged, the attachment order, declining to exercise jurisdiction to hear the dispute. The nub of the decision appears to be: "That sufficient national connection [ie, with Germany] of the legal dispute ... does not exist in this case". Severstal appealed, unsuccessfully (judgment given on 9 March 2006). 16On 26 October 2005, Bhushan Steel wrote to Severstal asserting defects in the steel supplied pursuant to two of the earlier contracts. 17On 9 June 2006, Severstal commenced proceedings for damages for breach of contract in respect of contract 50754 in Geneva. On 18 June 2009 the court gave judgment in favour of Severstal, in the amount of US$1,924,934.20 plus interest, plus costs. 18Although, in recording the history of the dealings between Severstal and Bhushan Steel, the court noted the quality issue said to have been mentioned on 1 April 2005, and also a meeting on 27 and 28 January 2005 of representatives of Severstal and Bhushan Steel concerning future orders, particularly in terms of "quantity, quality and price", there is no indication in the judgment that alleged defect in the steel produced by Severstal was raised by way of defence. (Since the Geneva proceedings involved only steel the subject of contract 50754, of which Bhushan Steel had refused to take delivery, it is difficult to see how the quality of that shipment could have been an issue in those proceedings.) The court appears to have identified the issue in the proceedings as: "24. ... [Bhushan Steel] asserted that it was not contractually bound to SEVERSTAL for order number 50754 because SEVERSTAL had not countersigned the order confirmation by hand. The letter of the 1 April 2005 was qualified as a single "revocation" of an offer. It added that the compensatory sales had been made after too long a delay and that the storage costs were not proven." 19Bhushan Steel appealed against the decision. By judgment served on the parties on 20 January 2010 (but which is, in the affidavits and submissions in this Court, regularly referred to as of 15 January 2010) the Geneva Court of Appeal dismissed the appeal. It recorded a history in similar terms to that recorded by the first instance court, including the mention of the letter of 1 April 2005 concerning quality. The Court of Appeal expanded on the reference to the meeting of 27 and 28 January by saying: "Rolf RAINKE, an employee of Severstal 's agent, LIBERTY STEEL, which had worked with MAHINDRA in connection with this matter, indicated that he had met up with BHUSHAN [STEEL] in India on 27 January 2005 to discuss future orders. SEVERSTAL's technicians and sales staff were also present. BHUSHAN [STEEL] had indicated, during the discussions, that it wanted the surface of the goods delivered by SEVERSTAL to be improved. SEVERSTAL had replied that such improvement was largely impossible and that the steel delivered met the usual quality standard. BHUSHAN [STEEL] had then declared that it could live with the defects and that it would continue to order steel from SEVERSTAL ..." (Pp6/8) A reference was also made to defective coils provided on a prior occasion. 20It does not appear from the judgment of the Geneva Court of Appeal that the quality issue was, in any significant way, material to the appeal. 21On 8 January 2007, Bhushan Steel commenced proceedings in the Delhi High Court, in relation to the steel supplied by Severstal pursuant to the first three contracts, alleging that the steel provided was defective. Severstal is defending the claim. Hearing of those proceedings has commenced. There exists some controversy as to the likely progress of the proceedings, and the time estimated to be necessary for their completion. 22On 22 July 2010, Severstal took proceedings in the Netherlands to enforce the judgment of the Geneva Court of Appeal, and obtained appropriate orders. No further enforcement steps have been taken in that jurisdiction, because Bhushan Steel holds no assets there. 23On 20 January 2011, Bhushan Steel signed a share purchase agreement with Bhushan Energy, pursuant to which Bhushan Steel transferred to Bhushan Energy 3.999 million of the 7,570,099 shares it held in Bhushan Australia. The Australian dollar price per share was $1.00. The total Indian rupee price was 1,500,000 rupees. Over a period from 1 February 2011 to 17 February 2011, in three tranches, sums in the amount of 1,600,000 rupees were transferred from an account in the name of Bhushan Energy to Bhushan Steel. Bhushan Steel states that these payments represented payment for the shares in Bhushan Australia. (There is nothing in the accounts that confirms that that was the purpose of the payment.) 24On 22 February 2011, on application by Severstal, this Court made an order pursuant to Pt 2 of the Foreign Judgments Act , registering the judgment of the Geneva Court of Appeal. 25On 23 February 2011, again on the application by notice of motion of Severstal, Davies J made a "freezing order". Essentially, the effect of the order is to restrain Bhushan Steel, until further order, from dealing in its shares in Bhushan Australia, up to a value of $2,448,712.10 (the equivalent value of the Geneva judgment), and restraining Bhushan Australia, until further order, from registering any changes in its shareholding. Since the transfer of the shares in Bhushan Australia from Bhushan Steel to Bhushan Energy is not completed, registration not having taken place, the order preserves the status quo in Bhushan Steel's shareholding in Bhushan Australia, and prevents completion of the sale, and depletion of assets held in Australia by Bhushan Steel. 26On 24 June 2011, Bhushan Steel offered to resolve the present dispute by providing a "conditional bank guarantee" in the amount of the registered judgment, plus interest calculated to 30 November 2011, to be payable on completion of the Delhi proceedings (the amount payable to depend upon the outcome of those proceedings). Severstal does not accept that offer.
The proceedings 27Affidavit evidence was given in the proceedings on behalf of Bhushan Steel by Mr Manish Ranjan, who is currently the head of the legal group of Bhushan Steel, and Mr Sriharsh Bundela, counsel for Bhushan Steel in the Delhi proceedings and by Mr James Richard Willis, a solicitor representing Bhushan Steel in these proceedings. A report in the nature of an expert report was given by Justice Usha Mehra, a retired judge of the Delhi High Court. Each (except Mr Willis) gave oral evidence and was cross-examined. 28Affidavit evidence on behalf of Severstal was given by Mr Max Bonnell, a partner in the firm of solicitors representing Severstal in these proceedings, Mr Hernan Pintos-Lopez, an employed solicitor in the same firm, and Mr Withold Skrotzki, the manager of Severstal. Only Mr Skrotzki was required for cross-examination. 29I will refer to the salient evidence of these witnesses in the discussion below.
Stay of execution of the Geneva judgment 30No issue arose as to the jurisdiction to grant a stay of the kind sought, although some difficulty was experienced in pinpointing the precise source of power. Ultimately, the parties agreed that s 135(2)(c) of the Civil Procedure Act 2005 provided the necessary power. I am prepared to act upon that agreement. 31Although applications for stay of execution of judgment are not unusual in this Court, this is a somewhat unusual instance of such an application. This Court is familiar with cases in which a stay of a first instance judgment is sought pending appeal. In those cases, one consideration is the apparent (to the extent to which it can be assessed) strength or arguability of the issue or issues sought to be raised on appeal. Considerations of that kind do not here arise. However, other considerations relevant in those circumstances are equally here applicable. They were considered by the Court of Appeal in Alexander v Cambridge Credit Corporation Limited (Receivers Appointed) (1985) 2 NSWLR 685 at 694-5. "Special" or "exceptional" circumstances are not necessary. The Court said: The onus is upon the applicant to demonstrate a proper basis for a stay that will be fair to all parties ... The mere filing of an appeal will not, of itself, provide a reason or demonstrate an appropriate case, nor will it discharge the onus which the applicant bears: The Court has a discretion whether or not to grant the stay and, if so, as to the terms that would be fair. In the exercise of its discretion, the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may, in the exercise of its discretion, refuse to grant a stay. ... Two further principles can be mentioned. The first is that where there is a risk that the appeal will prove abortive if the appellant succeeds and a stay is not granted, courts will normally exercise their discretion in favour of granting a stay ... Thus, where it is apparent that unless a stay is granted an appeal will be rendered nugatory, this will be a substantial factor in favour of the grant of a stay ... (694 - 5, internal references omitted). The court paid particular attention to the issues that arise where a judgment debtor has divested itself of property since the judgment under appeal (695 - 696). 32Here, it was a significant plank of Bhushan Steel's argument in favour of a stay that the Geneva proceeding and the Delhi proceeding have "a common substrata [sic] of fact". 33I am far from satisfied that that is so. First, the evidence as to Bhushan Steel's complaints about the quality of the steel is scanty indeed. It seems that what is asserted to have been a letter of 1 April 2005 raising such questions has never been produced. The earliest documentary evidence of quality concerns is a letter sent by Bhushan Steel to Severstal on 26 October 2005. Second, despite assertions to the contrary, it is clear to me that quality concerns were not raised as a defence to the Geneva proceeding. (Whether, within the Swiss legal system, they could have been, was not the subject of evidence.) Third, in two affidavits and in his oral evidence, Mr Ranjan made no claim that defects in the steel played any part in Bhushan Steel's reason for declining to take delivery of the steel the subject of contract 50754. The correspondence of 1 June 2005, asserting decline in market price, powerfully suggests an alternative reason. 34The "common substratum" lies in the identity of the parties to the Geneva litigation and the Delhi litigation and that, in each case, the issues concern contracts for the sale of steel. There the commonality ends. 35Another basis upon which Bhushan Steel argued for a stay is that Severstal has "made no effort to register its judgment in India" or to enforce it against the undoubted substantial assets Bhushan Steel there holds. The evidence of Justice Mehra, however, suggests (without being explicit) that India lacks the streamlined registration system provided by the Foreign Judgments Act . 36There is no reason that a judgment creditor is obliged to register its judgment in the jurisdiction most convenient to the judgment debtor, or even the jurisdiction most closely connected to the litigation, or the jurisdiction in which the judgment debtor holds the majority of its assets. A judgment creditor is entitled to select as the jurisdiction of its choice for registration and enforcement that which is, in its perception, most readily conducive to enforceability. 37Finally, reference was made to Severstal's refusal to accept the "bank guarantee" offer made by Bhushan Steel. I am satisfied that Severstal's reasons for refusing that offer are valid. Payment under the offer is to be deferred until the outcome of the Delhi proceedings is known; that is, despite Justice Mehra's evidence, uncertain. No provision is made for appellate review and there is no evidence as to the tiers of appellate review that may be available in the Indian judicial system. 38The bulk of the evidence of Justice Mehra and Mr Bundela was directed to the time frame in which the Indian litigation can be expected to be completed. There being no competing evidence, I accept that the first instance decision can be expected within months. However, there is no evidence as to any appellate process, and I am not satisfied that conclusion of the litigation could be seen as imminent. 39I am satisfied that Severstal should not be further delayed in enforcing the judgment it has obtained. I decline to order a stay of execution.
The freezing order 40Reference was made during the course of the proceedings to s 37A of the Conveyancing Act 1919, pursuant to which alienation of property made with intent to defraud creditors is voidable at the instance of any person thereby prejudiced. 41It was Severstal's contention that the circumstances surrounding the transfer of shares transaction give rise to a strong suspicion that it was undertaken in order to avoid the consequence of the registration of the Geneva judgment, and to defeat Severstal. The transfer agreement was, of course, commenced prior to registration of the Geneva judgment, but at a time when Severstal had signified clearly its intent to pursue Bhushan Steel and use whatever means were available to it to obtain the contract price of the steel. It would not have been difficult for even moderately astute advisers of Bhushan Steel to appreciate that the only other jurisdiction in which Bhushan Steel held substantial assets was Australia, and, further, that Australia provided a convenient process for registration and enforcement of judgments obtained in other jurisdictions. Moreover, the documentation concerning the decision to transfer assets of considerable value was poorly, if at all, documented. There is, for example, no evidence to establish that the shares transferred were of anything like the value represented by the price in the sale agreement. 42And the truth is that the transfer is no more than a transfer of assets within a closely connected group of companies, at no cost to the group overall, but, in the process, removing them from the jurisdiction in which it may well have been anticipated that enforcement of the Geneva Judgment would be attempted. 43To discharge the freezing order would, in my opinion, be inconsistent with the refusal of a stay of execution, and would, at least, substantially reduce the value of Severstal's success in respect of that application. I decline to make an order of the kind sought. 44As an alternative, Bhushan Steel sought a variation of the freezing order so as to permit completion of the Share Purchase Agreement between Bhushan Steel and Bhushan Energy. It was accepted that completion of that arrangement would deplete the Australian assets of Bhushan Steel to a level below the value of the Geneva judgment (which, by reason of the interest component, is increasing daily). 45Although it is clear that some variation of the freezing order may, in due course, be necessary to permit enforcement of the Geneva judgment, it is inappropriate to allow the variation sought, and I decline to do so. 46The notice of motion is dismissed with costs.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 November 2011
Severstal Export GmbH
Bhushan Steel Limited
(1985) 2 NSWLR 685